A Deep Dive into Donation Receipts: Must-Know Essentials
You know that there’s a lot of behind-the-scenes work required to keep a nonprofit running effectively—compliance and internal management, finances, prospect research, and more. Backstage work is just as important as frontstage fundraising, but it can be easy to lose sight of this amid the day-to-day challenges of securing new gifts and engaging donors.
If you work in an outward-facing role like fundraising, you might not need to handle many of these types of internal or nonprofit compliance necessities yourself. And although they’re not usually as exciting, these tasks often play vital roles by ensuring your nonprofit’s health and in building relationships with donors.
Donation receipts are a great example of an aspect of nonprofit compliance that frontline fundraisers should know about. They’re important for many of your donors, who may ask you questions about them. Providing (or not providing) receipts can say a lot about your nonprofit, so it’s worth understanding when they’re required, what they should include, the value they bring, and more.
When are donation receipts required?
Per the IRS, written receipts or acknowledgments are required for individual donations of $250 or more. This is also referred to as donor substantiation.
The same guideline also applies to in-kind donations of goods valued at $250 or more. It is the donor’s responsibility to provide a valuation in these cases. You can provide a good faith estimate of donated goods but should always clarify to donors that it’s their responsibility to determine the exact deductibility of the donation.
However, despite the $250 threshold, providing donation receipts in one form or another for all gifts you receive is considered best practice. Even though there’s no IRS penalty for not providing a receipt for small gifts, failing to do so can jeopardize your donor relationships.
First and foremost, donors need receipts in order to claim tax deductions. This is likely an important motivator for some of your donors, especially at the end of the year, so failing to provide receipts can become a pain point in your relationships. However, there are several other benefits to providing consistent donation receipts that make them worth understanding and providing (more on these later).
What should be included on a donation receipt?
Donation receipts should include:
Your organization’s name
Include your employer identification number for added donor convenience.
The donor’s name and date that the gift was received
Cash contribution amount
Description of non-cash contributions, if applicable
You may also include a good faith estimate of the value of in-kind donations, but include a disclaimer that it is the donor’s responsibility to determine ultimate valuation/deductibility.
A statement that no goods or services were provided by the organization in exchange for the donation, if applicable
A description and estimate of the value of any goods or services that were provided in exchange for the donation, if applicable
In most cases, goods provided in exchange for donations will be considered to have insubstantial value as laid out in Revenue Procedure 90-12.
Specifically, this disclosure is not required when the fair market value of all of the benefits received for the donation is not more than 2% of the total (or $50, whichever is less). There is also an explicit disclosure exemption when token branded items are provided for donations of $25 or more.
A statement that any goods or services provided in exchange for the donation consist of intangible religious benefits, applicable for faith-based organizations substantiating gifts
For an even deeper dive, go straight to the source with the IRS’s guidelines for substantiating charitable contributions.
What are the benefits of providing consistent donation receipts?
Now you understand the nitty-gritty of donor substantiation requirements—but what do receipts mean for you as a fundraiser directly engaging with your donors?
Prompt, clearly-labeled donation receipts that include all the essential information can benefit your relationships with donors in a few ways:
They serve as a form of donor recognition (Following up to communicate the actual impact of their gifts is still a must, though!).
Receipts build trust with donors and make a professional impression.
Donation receipts give donors what they need for tax purposes.
Taken together, these benefits show donors that your organization is respectful, organized, and professional—in other words, an excellent steward of their gifts. This makes donors more likely to continue their relationships with your nonprofit over the long run, trusting that you’re doing your due diligence to drive real impact with their donations.
How do you ensure donation receipt consistency?
To achieve the long-term relationship benefits that come with donation receipts, consistency is key. You’ll need to devise systems to ensure donation receipts are created correctly and delivered promptly shortly after a donation is made.
For online donations made directly to your organization, this is easy. Modern donation software should allow you to configure automatic thank-you emails that double as donation receipts.
However, the process can be trickier for donations collected through social media platforms, since not all platforms provide you with a complete list of donor names, donation amounts, or contact information. Research the specifics of social media-based fundraising tools you use to determine the steps you should take to ensure consistent donor recognition and substantiation.
For offline gifts collected in person at fundraising events or through the mail, create a standard set of steps for creating donation receipts, stick to them, and be sure to assign clear ownership. Many organizations set threshold amounts and only provide receipts above this level, reducing manual process requirements.
For both online and offline donations, the substantiation guidelines laid out above still apply.
Although the stakes of donor substantiation might seem lower than those of more critical compliance tasks like fundraising registration and Form 990s, they’re still very important for both logistical and stewardship reasons.
Receipts give you and your donors a clear record of your transactions, and they can go a long way towards strengthening your relationships over time. As a fundraiser building relationships with donors on a daily basis, ensuring they receive receipts after every gift should be a key part of your follow-up process.
Sharon Cody
Sharon Cody, J.D. is the Nonprofit Market Manager at Labyrinth, Inc., the leading provider of state charity registration services. Sharon is passionate about educating nonprofits and fundraisers on the role of state charitable compliance as both a best practice and an industry differentiator. She received her bachelor's degree from Rutgers University and her Juris Doctor from Penn State Dickinson School of Law. Sharon’s more than 30 years of experience as an attorney, charitable fundraiser, foundation executive, donor, and nonprofit board member give her unique insight on the use of fundraising compliance as a strategic tool to build trust, enhance reputation, and increase revenue.
